U.S. IRS needs ‘Plan B’ on stalled tax preparer rules -watchdog

WASHINGTON (Reuters) – The U.S. Internal Revenue Service needs a fallback option that would encourage thousands of tax return preparers to voluntarily become certified, with the agency’s mandatory training program now facing uncertainty in court, an IRS watchdog told Reuters.

Nina Olson, the National Taxpayer Advocate, who defends taxpayers’ rights as the ombudsman within the IRS, said: “We are recommending Plan B to be going to a voluntary approach.

“I don’t want to go through another filing season where taxpayers are at the mercy of uneducated return preparers,” she said in a recent interview with Reuters.

Faced with a maddeningly complex tax code, about 80 million Americans each year pay someone to prepare their tax returns. While most preparers are trained and efficient, some are not.

To improve the quality of tax preparers, the IRS has been developing a program for regulating the free-wheeling industry, but its initial effort is stalled in court.

About a third of the $9.4-billion tax return preparation business is controlled by sector leader H&R Block Inc and three other mid-sized rivals, such as Jackson Hewitt Tax Service Inc.

The remaining two-thirds is split between licensed and unlicensed preparers. The unlicensed, independent segment of the business includes about 350,000 preparers. That is where the IRS finds the most problems – thousands of unlicensed mom-and-pop firms that include the unqualified and the unscrupulous.

FOUR STATES REGULATE

At the moment, the business is not policed by the federal government. New York last month became the fourth state to impose regulations, joining California, Oregon and Maryland.

Seeking oversight of the business for the first time, the IRS in early 2013 tried to impose new testing and continuing education requirements on unlicensed preparers nationwide.

But that effort was blocked by a lawsuit brought by a libertarian group opposed to the rules. The Obama administration has appealed, with a decision expected soon.

Olson, the internal IRS watchdog since 2001, said that if the new program is struck down, the IRS should offer voluntary classes and testing to preparers who want to take them.

IRS Commissioner John Koskinen earlier this month said the IRS should start offering a certificate to those who pass a competency test and take continuing-education classes. “The fact that it is tied up in court shouldn’t keep us from moving forward even on a voluntary basis,” he told reporters.

“If you complete the information you get a certificate that says, ‘I completed the IRS preparer course.’ That could be, over time, very valuable for preparers,” Koskinen said.

Some tax professionals doubted a voluntary approach would do much. “It’s mere window dressing,” said Jim Buttonow, a former IRS official who started a tax software business in North Carolina. Rather than go to a certified preparer, many consumers will still go where they get the biggest refund, he said. “To the consumer, it doesn’t really mean much.”